Tag Archives: inequality

housing vouchers for all?

This article argues that if the U.S. took away the mortgage interest tax deduction, it could provide a housing voucher to everyone below the median household income. That’s hard to believe, but the key is probably that the median is well below the average, because of course the income distribution is skewed toward the top. I like my mortgage interest deduction. It is an important part of my retirement strategy and as I am a bit above the median (but hardly rich) it would be hard for me to support this policy.

Here’s another article on BillMoyers.com that says if you took away the mortgage interest tax deduction, the cap on social security deductions, the lower rate on capital gains, and tax-advantaged retirement accounts, you could double Social Security benefits for everyone. There’s a bit of a trick here – these ideas are presented as revenue neutral, because you can think of all these tax breaks as money the government is spending, rather than money it is not collecting compared to what it could be collecting or what it has collected under some past policy. It would be very easy to paint these as tax increases instead, of course. Still, I could be more easily persuaded to support this policy that the first one, because I would be guaranteed to get a portion of the higher taxes I am paying now back when I am older, and I wouldn’t have to worry so much about savings or home equity now. I would know that people who are both richer and poorer than me would all get the same share I would get, which I might be able to accept on grounds of fairness. I’m not out in the streets campaigning for this policy yet, I have to think about it.

inequality and mobility

The Federal Reserve Bank of Cleveland has an interesting study of income mobility in the U.S. It appears to be true that the poorest families tend to stay poor (between 2003 and 2013, 64% of families in the poorest 20% stayed in the poorest 20%), while the richest tend to stay rich (72% of families in the richest 20% stayed in the richest 20%). Looking at the table if you are in one of the middle quintiles, (between the 20th and 80th percentiles, your chances of moving up or down to the adjacent quintile look to be about even. This measure of mobility increased somewhat in the 80s and 90s, but appears to be on the decline since then. Mobility is harder to measure across generations, but it does appear to be much higher than within a single generation, which you would expect. Mobility in the U.S. is lower than in other developed countries, both the northern European socialist ones where you might expect it, but also the Anglo-American peers like Canada, Australia, and New Zealand, although the UK, France, Italy are in the same ballpark as the U.S. If you’re interested in this, stop reading my wordy description and go look at the data!

equality vs. equal opportunity

Continuing to think about European socialism-style equality vs. the U.S. narrative of equal opportunity and the pursuit of happiness. Our version makes more sense in some ways – everyone starts out equal, but then people who work the hardest, have the best ideas, or are willing to take risks get rewarded. This makes sense as an ideal – combine it with a safety net for those who don’t succeed through no fault of their own, and it could be a nice, practical vision. The main problem is that it is a narrative that can be twisted and co-opted by the rich and powerful to write the rules unfairly in their favor, ultimately creating the opposite of equal opportunity. Even darker, it can lead to a narrative where people who benefit from the rules being unfairly in their favor find ways to rationalize their success, convincing first others and then themselves that they had superior talents to being with. Here’s an article from Shelterforce that makes some of these arguments:

Upon closer scrutiny, however, the meritocratic ideal turns out to be quite pernicious.  Summarizing the conclusion of my recent article on the subject, I find that, while this ideal is highly unlikely to achieve its core objectives (except maybe on the margins), its pursuit nonetheless creates “a competitive individualist ‘rat race’ of a society, fundamentally anti-communal and anti-familial, where group solidarity is uncommon and compassion muted.” And, worst of all, it ends up legitimizing—and thus reinforcing—the very social and economic inequality it purports to rectify…

In particular, much of liberal urban policy focuses on what liberals see as a kind of “unholy trinity” of barriers, as I have labeled it, that stem from inadequate schooling, troubled families, and poverty-impacted neighborhoods. Yet there is a great body of evidence showing that efforts to break down these barriers yield only marginal results in promoting meritocratic social mobility for the urban poor, while at the same time imposing significant costs on the most vulnerable.

Mostly notably, we see various school reforms fail over and over, and even enhanced higher education produces surprisingly limited impacts. As a result, we end up blaming the educational system for the failures of the rest of society, which in turn opens the door to corporate-oriented policies designed to privatize and monetize public schools. At the same time, programs that intervene into family life, unless highly intensive, also produce only minimal results, and when such interventions are intensive, they tend to violate the liberty of poor parents to autonomously direct the development of their children. Likewise, efforts to reduce barriers arising from the effects of poor neighborhoods via housing dispersal policies or the creation of mixed-income communities also have been generally disappointing, while often disconnecting the vulnerable from crucial familial and communal bonds.

I still think we should talk about how to make equal opportunity, with an appropriate safety net, a reality in this country, as an alternative to the European socialist model, which is the main alternative. These are really the only two humane options. What could true equal opportunity look like? For the sake of argument, let’s say we had a 100% inheritance tax, with the proceeds distributed equally to all newborn babies. Universal tax-funded education, up to and including the highest level of education and/or practical skills training needed to succeed in the economy, including continuing education for adults to adapt as technology and economic conditions change. Universal and equal access to health care. Excellent public infrastructure serving and connecting all urban areas. Low barriers to changing jobs or starting a business. Now you have a platform where people can compete and cooperate to build wealth. Some will work harder, innovate more, take more chances and earn more financial rewards. Others will choose to play it safer, devote more time to family and leisure, or just enjoy life’s experiences with less material wealth. You would still need unemployment and disability insurance for those who fall through the cracks through no fault of their own.

free trade

I just thought I would counter yesterday’s discussion of “blowback economics” with a typical pro-trade argument from a mainstream economist, in this case Kenneth Rogoff at Harvard:

The rise of anti-trade populism in the 2016 US election campaign portends a dangerous retreat from the United States’ role in world affairs. In the name of reducing US inequality, presidential candidates in both parties would stymie the aspirations of hundreds of millions of desperately poor people in the developing world to join the middle class. If the political appeal of anti-trade policies proves durable, it will mark a historic turning point in global economic affairs, one that bodes ill for the future of American leadership…

The right remedy to reduce inequality within the US is not to walk away from free trade, but to introduce a better tax system, one that is simpler and more progressive. Ideally, there would be a shift from income taxation to a progressive consumption tax (the simplest example being a flat tax with a very high exemption). The US also desperately needs deep structural reform of its education system, clearing obstacles to introducing technology and competition.

Indeed, new technologies offer the prospect of making it far easier to retrain and retool workers of all ages. Those who advocate redistribution by running larger government budget deficits are being short sighted. Given adverse demographics in the advanced world, slowing productivity, and rising pension obligations, it is very hard to know what the endgame of soaring debt would be.

Like I said, I am still thinking these things through. I find the mainstream economic arguments very elegant and appealing, but clearly they haven’t led to the promised gains for everyone in either the developed or developing countries. I am suspicious of the trickle down claims, although I have spent time in so-called “middle income” countries in Asia and I can’t deny that even the relatively poor have made huge gains in areas in health, nutrition, and life span, even if monetary incomes are lagging. The fact that things are better than they used to be doesn’t mean they are as good as they could be. I would like to hear more details about these training technologies and education reforms that are going to make everyone competitive in the global economy – when are they going to be rolled out, how and by whom? Or if there is not a plan yet, who exactly is working on one?

Citi and Oxford on automation

Citi and Oxford have a long report called Technology at Work v2.0: The Future Is not What It Used to Be. Among the worrisome statistics and over-the-top infographics: 77% of jobs in China at risk due to automation, compared to 47% in the U.S. 77% seems like a recipe for serious unrest. 47% is still half. Still, maybe these are existing jobs and there will be new jobs created. Like robot repairman, for example. Being the guy who owns the robots seems like a very good option, if you can pull it off. Another eye opening statistic they show is the payback period for investments in robots at 1-2 years in China right now.

Thomas Picketty

This column by J. Bradford Delong is meant to criticize Thomas Picketty, but in the process he has a good summary of Picketty’s work:

Our reversion to the economic and political patterns of the Gilded Age is to be expected as the economies of North America and Europe return to what is normal for a capitalist society.

In a capitalist economy, Piketty argues, it is normal for a large proportion of the wealth to be inherited. It is normal for its distribution to be highly unequal. It is normal for a plutocratic elite, once it has formed, to use its political power to shape the economy in a way that enables its members to capture a large chunk of a society’s income. And it is normal for economic growth to be slow; rapid growth, after all, requires creative destruction; and, because what would be destroyed would be the plutocrats’ wealth, they are unlikely to encourage it.

Later Delong talks about how Keynes might rebut this argument:

Unequal wealth distribution, in this view, produces what Keynes called “the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.” The result is an economy with relatively equal income distribution and a polity in which the wealthy have a relatively small voice.

So as the rich corral more and more of the wealth, they become more and more of a minority. Initially the 1% preys on the 99%, then the 0.1% on the 99.9%, and so on. At some point, there is not enough wealth or economic energy remaining for everyone else that the 0.001% need in order to keep accumulating wealth. At that point, they can try to employ some combination of propaganda and force to stay in power. When that breaks down, the balance of the force is restored (sorry, I just saw Star Wars today.) But what happens when the means of production and economic activity is almost entirely automated, and lies in the hands of a tiny minority? What if there is no limit to the force they are able to employ?

Robert Reich on the sharing economy

Robert Reich is not a big fan of the sharing economy.

The euphemism is the “share” economy. A more accurate term would be the “share-the-scraps” economy.

New software technologies are allowing almost any job to be divided up into discrete tasks that can be parceled out to workers when they’re needed, with pay determined by demand for that particular job at that particular moment.

Customers and workers are matched online. Workers are rated on quality and reliability.

The big money goes to the corporations that own the software. The scraps go to the on-demand workers.

His solution is unionization and collective bargaining. I am not against those things – in the short term, how you divide up earnings between owners and workers is a zero-sum question. In the longer term though, you want to grow those earnings at the same time you are dividing them up in some fair way. Unionization might resist the underlying economic and technological forces for a time, but it can’t change them. Remember the “ownership society”? If we aren’t going to give workers real equal bargaining power compared to their corporate employers, a possible alternative is broader ownership of those corporations. We could use inheritance and gift taxes to give every baby an IRA with $10,000 in stock the day they are born, just to throw out a random idea. That would grow, and then later in life, people could choose to either invest that money in education and skills for the jobs that do exist, or they could just choose to work fewer hours than earlier generations did.

Russell Brand vs. John Oliver

I enjoy Russell Brand’s take on American social issues here. His show is a little bit like John Oliver’s show, in that it is insightful yet delightfully hilarious commentary interspersed with real facts, figures and news clips. The main difference is that Russell is in his bedroom rather than a television studio, and does not appear to have taken a shower or put on a clean shirt yet.